Pemex Claims Siemens Paid Millions in Bribes

     MANHATTAN (CN) – PEMEX, Mexico’s national oil company, claims in court that Siemens bribed PEMEX officers, including a Mexican senator, to get millions of dollars in extra payments for a refinery modernization.
     Petroleos Mexicanos and its subsidiary Pemex-Refinacion (PREF) sued Siemens and South Korean conglomerate SK Engineering & Construction Co., in Federal Court.
     The SEC sued Siemens in December 2008, claiming it had “made three separate illicit payments totaling approximately $2.6 million to a politically connected business consultant to assist in settling cost overrun claims in connection with three refinery modernization projects in Mexico,” PEMEX says in the complaint.
     Siemens pleaded guilty to conspiring to violate the Foreign Corrupt Practices Act, and “agreed to pay a precedent-setting $1.6 billion penalty to U.S. and European authorities to settle charges that it routinely used bribes and slush funds to secure massive public works contracts around the world, including refinery modernization projects in Mexico,” the complaint states.
     Siemens, a giant German conglomerate, formed a joint venture, CONPROCA, with South Korea-based SK Engineering & Construction Co. to bid on a refinery modernization project in Cadereyta, Mexico. PEMEX awarded the contract to CONPROCA in 1997.
     PEMEX claims that instead of completing the work by July 2000, as agreed in the original contract, CONPROCA asked for a new deadline and for millions of dollars in change orders to cover alleged cost overruns.
     Siemens and its partner blamed the extra expenses on construction site access problems, weather, toxic leaks and interference from PREF, according to the complaint.
     PEMEX transferred millions of dollars for additional invoices to CONPROCA’s bank account in New York after the defendants bribed several PEMEX officials, the complaint states.
     The bribed officials, who are not named as defendants, include Siemens consultant Jaime Federico Said Camil Garza, PREF project managers Eduardo Vergara Cabrera and Maximo Tellez Rosas, PREF counsel Luis Enrique Bouchot, and Cesar Nava Vazquez, general counsel at PEMEX, according to the complaint.
     Vergara Cabrera, Tellez Rosas and Bouchot were removed and banned from public employment for several years, but they appealed the order, which was reversed. An appeal of the reversal is pending, according to the complaint.
     Several SKEC officers were imprisoned in Korea due to irregularities in managing the company, including corruption, the lawsuit states.
     “In order to obtain the Cadereyta project, Siemens and SKEC, working through CONPROCA, presented a significantly lower economic proposal than their only other remaining competitor,” the complaint states. “Notably, CONPROCA’s financing plan described that CONPROCA would issue five tranches of debt in the aggregate principal amount of $1,521,115,210, through several agreements with financial institutions and the issuance of bonds registered with the SEC. The financing plan was transmitted via facsimile, i.e. using the wires, from New York to PEMEX in order to induce PEMEX to perform under the contract, which was conditioned to CONPROCA obtaining financing for the Cadereyta project.
     “Having won the project, defendants devised a plan to manufacture a series of cost overruns, the payment of which would allow them to make up the financial shortfall incurred by submitting an economically unrealistic bid. As part of their scheme to defraud, upon information and belief, defendants bribed several individuals at PEMEX, such as a former PEMEX official who was a senator in Mexico.
     “First, the corrupt payments allowed defendants to secure additional agreements between PEMEX and CONPROCA, which created a supposedly ‘legal framework’ for the payment of the cost overruns. These additional agreements were obtained despite an external audit report submitted to PEMEX, which recommended that the cost overrun payments not be made because (i) they were not contemplated under the parties’ original contract and (ii) they lacked documentary support. In addition, these agreements were never submitted to the PEMEX board of directors in clear violation of the company’s internal operating procedures.”
     PEMEX claims the Siemens-bribed officials approved CONPROCA’s invoices despite PEMEX’s rules and audit reports advising to the contrary, and knowing that the invoices were fraudulent.
     It claims they paid more than $182 million toward CONPROCA’s alleged cost overruns.
     What’s more, the bribed officials prevented PEMEX from receiving more than $102 million as compensation for CONPROCA’s contract violations, according to the complaint.
     “On Dec. 12, 2008, the U.S. Securities & Exchange Commission filed a complaint against Siemens in U.S. SEC vs. Siemens AG, Case No. 1:08-cv-02167, which establishes that ‘[i]n late 2004, Siemens PG and Siemens S.A. de C.V., a regional entity, made three separate illicit payments totaling approximately $2.6 million to a politically-connected business consultant to assist in settling cost overrun claims in connection with three refinery modernization projects in Mexico,'” the complaint states.
     “The SEC complaint revealed facts evidencing that Siemens engaged in a systematic practice of paying bribes to PEMEX to obtain business. Siemens conducted these illegal activities in Mexico and around the world. Furthermore, Siemens concealed the nature of its corrupt payments through an elaborate payment scheme. As part of its scheme to defraud, Siemens employed ‘business consultants’ like Camil Garza. These consultants would charge exorbitant fees which, once received by the consultants, would be paid out as bribes to maintain the scheme.
     “In early 2013, Luis Ruben Esparza met with PEMEX officials at PEMEX’s offices in Mexico City. During that meeting, Esparza offered to organize a meeting between Siemens Mexico’s former general counsel, Peter Paul Muller, and PEMEX officials. Although Esparza is a lawyer in Mexico, he was only acting as a go-between in order to facilitate the meeting. Esparza advised that Muller had specific knowledge of the bribery allegations related to Siemens, SKEC, and the Cadereyta project.
     “On Jan. 17, 2013, Muller voluntarily testified before a notary public in Mexico. Muller’s declaration referred to specific facts material to this action. Specifically, Muller stated that he had seen the invoices that Jaime Camil Garza had issued to obtain $2.6 million, which were approved by Siemens’s financial director, Jose Querubin. Muller added that Querubin told him that the monies paid to Jaime Camil Garza ended up in the hands of a high ranked official in PEMEX. Specifically, the goal of the bribe was to obtain payment of the substantial cost overruns that CONPROCA wanted to obtain on the Cadereyta project.
     “Muller, however, had more to tell. Knowing this, Esparza later demanded that PEMEX pay him $1,300,000.00 in exchange for further testimony. On April 16, 2013, Esparza was arrested on charges of extortion.
     “Following Esparza’s arrest, the Public Prosecution Office issued a subpoena for Muller to testify regarding his knowledge of the facts related to this RICO action on April 30, 2013. Muller failed to comply with the first subpoena, and a second subpoena was issued for May 6, 2013.
     “On May 6, 2013, Muller went to the Procuraduria General de la Republica (Solicitor General’s Office) where he testified for approximately eight hours. During his testimony, Muller confirmed that Siemens paid bribes to PEMEX officials connected to the Cadereyta project cost overruns. He further explained that the contract between Jaime Camil Garza and Siemens was a cover up designed to avoid suspicions over the exorbitant fees paid to him as a Siemens consultant. According to Muller, the $2.6 million Siemens paid to Camil Garza were paid to PEMEX officials. Muller revealed that one of those PEMEX officials was a senator in Mexico.
     “Muller added that there are other witnesses with knowledge of the facts related to this RICO complaint, including Viktor Warketin, who was one of the leaders of the Cadereyta project, and Fuentes Pro, a witness located in Monterrey, Mexico.”
     In a May 15 press release on Mexican television Televisa’s website, CONPROCA claimed that PEMEX had no proof for its allegations, and that its arguments were inconsistent and have changed over time, including three times in the past five months. CONPROCA said it had acted and would continue to act in compliance with its contract with PEMEX, and promised to cooperate with the authorities.
     PEMEX seeks damages for RICO violations, conspiracy to violate RICO, and fraud.
     It is represented by Eliyahu Kaploun with Diaz, Reus & Targ, and Thomas Goldstein with Goldstein & Russell, of Washington D.C.
     Cadereyta is in Nuevo Leon state in northern Mexico, northeast of the state capital Saltillo.

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